Is creating an emotional bond or emotional engagement really what you’re after when working with prospective candidates who are interested in your franchise? If your job function is in franchise sales you’ll probably say “Yes”. If you’re a CEO you’re likely thinking “No?”. The nature of the franchisor-franchisee relationship is complex and must begin with a proper alignment of expectations if you want to achieve long-term viability.

By definition, an emotionally charged buyer is someone who makes a buying decision based on feeling rather than rationale and reality. This creates fertile ground for a misalignment of expectations; the consequences of which are typically dire in franchising. But why is franchising different?

Well, in scenarios where you may be selling goods and/or services and the buyer and seller are independent of each other once the transaction is complete the consequences are not as severe.

As an example, if I visit a car dealership and see a shiny, new, red, foreign sports car I might envision myself sitting behind the wheel, driving around, and being the center of attention. It smells new, it looks new, and it handles great. I could easily romanticize about all the joy this car will bring me, and it’s this type of emotion that will be easily picked up on and played by the car salesman. Despite the high cost of ownership including the premium gas, insurance, expensive maintenance, not to mention the price tag – I can probably talk myself into buying it. However, in a few weeks the newness will wear off and I’ll find that nobody was as impressed with it as I thought they would be. I didn’t achieve all of the joy that I had envisioned that day while standing on the lot and now the reality of the gas, insurance, maintenance, and first loan payment has sunk in. I still like my car but I can see that my expectations were not realistic due to my emotions. I rushed the decision a bit, but perhaps I’ll sell it or just leave it in the garage.

The good news for the car dealer is that they aren’t relying on me to drive the car every day or to maintain it. What I decide to do with the car after the sale is made has no impact on the dealer’s business. A car dealer wants you to be an emotional buyer. They want you to create an emotional bond with the car, fall in love with it, romanticize about how great it will be to have it. Because a rational approach would require studying the total cost of ownership and being realistic about what you’re really getting and therefore you might not buy it.

Quite often we speak with franchising executives about the challenges they’re facing. During these conversations, one subject that is commonly broached is the challenge surrounding franchise sales/development. Many times what the organization’s leadership is explaining to us are symptoms of a problem, but they’re looking for a solution that only treats this symptom. The reality is that there is often a larger problem in play that gets little attention. That problem can usually be broken down like this:

1. Lack of consistent business processes in all areas including franchise sales, pre-opening, operations, and franchise administration.
2. Lack of IT infrastructure that enables the organization to manage their business processes.
3. Lack of analytics/reporting tools that enable management to benefit from business intelligence, or monitor and improve the business.

This is an excerpt from a typical conversation…

Us: “Can you briefly walk us through your franchise sales process.”

Franchise Exec: “Sure, we receive our leads through various portals or from our corporate website. The leads are emailed to a sales person (or our sales team) then entered into a spreadsheet.”

Us: “Ok, then what?”

Franchise Exec: “Then the salesperson follows up with the lead to see if they’re qualified and if so we send them an application to be completed.”

Us: “I see. What happens next?”

Franchise Exec: “If the application is returned, we review it to see if the prospect meets our initial requirements. If so, we send them a copy of the FDD, then we’ll invite them to our corporate office for a Discovery Day.”

Us: “What happens after the corporate office visit?”

Franchise Exec: “Well, we just follow up and answer any further questions; discuss the FDD; possibly refer a financing contact. You know, work on getting the agreement signed.”

K Jackson had an interesting post recently on a Cloud Computing research report. The Open Group has published a white paper on how to build and measure cloud computing return on investment (ROI). Produced by the Cloud Business Artifacts (CBA) project of The Open Group Cloud Computing Work Group, the document:

Introduces the main factors affecting ROI from Cloud Computing, and compares the business development of Cloud Computing with that of other innovative technologie;

Describes the main approaches to building ROI by taking advantage of the benefits that Cloud Computing provide; and

Describes approaches to measuring this ROI, absolutely and in comparison with traditional approaches to IT, by giving an overview of Cloud Key Performance Indicators (KPIs) and metrics

In presenting their model, business metrics were used to translate indicators of cloud computing capacity-utilization curves into direct and indirect business benefits. The metrics used include a number of measures, of which I’ve included a few below:

The entire white paper and relevant documents can be found online here. This is an excellent resource for executives and managers to consider when evaluating cloud technology investment.

Roger Smith shared an interesting post a number of years ago in Fast Company: Can Innovation be Bought?. His was an interesting angle to consider that senior management’s lack of familiarity or confidence with external innovations may be a barrier to their implementation. Though I see this sort of thing all of the time, particularly in franchise organizations.

But is it possible that the managers citing this lack of confidence are putting a new face on the old “not invented here” mentality? Many companies using “closed” models for innovation have long used it as a defense to maintaining their internal staffs and large R&D budgets. P&G and others are showing the true power of open innovation models in the market today. When speaking with most franchise industry people, and there are some exceptions out there, most of their views represent the closed model. If it doesn’t fit their view of the world, mostly based on quarter century old paradigms, then it won’t fly.

So what are the other potential barriers to innovation? Strategos, Gary Hamel’s consulting firm, released a survey with senior executives in 2004 on the key barriers to effective innovation. Some interesting statistics in that study regarding the top factors cited as barriers…

Short term focus/ focus on operations (63%)

Lack of time, resources or staff (52%)

Lack of systematic innovation process (33%)

Leadership expects payoff sooner than is expected (31%)

Management incentives not structured to reward innovation (31%)

Also interesting that only 15% cited “we don’t know how to think out of the box” as a barrier to innovation. Now because managers think its so doesn’t make it so. This survey reflects beliefs not necessarily realities – a case in point being the excuse of having inadequate resources to innovate. That is as much a reflection of folks not really doing what they should be doing as anything. The bottom line is this: there’s a direct relationship between innovation and failure. The key killer of innovation is the lack of tolerance for failing – a necessity for innovation which directly reflects an organization’s culture. Watch no risk no innovation below for insights on this important barrier to innovation and if you are ready to really impact the way your franchise system works, take some risk and set up a test drive of our franchise flywheel application. Innovation isn’t as scary as people believe.

Reading Harvard Business Review’s blog “Is the U.S. Killing Its Innovation Machine” I am reminded of the continual challenge of quality managers and entrepreneurs : the need to balance the near and long term. In fact most, if not all, of the significant challenges facing organizations today result from the failing of leadership to convey the value of long term goals to stakeholders for fear of the near. The “Tyranny of the Urgent” as Hummel wrote. Nowhere is this more true than in the franchise business mode, where the temptation of selling franchises that hold promise for easy riches in the near term can undermine any hope for longevity.

Its easy to “demand” results: particularly when there is so little understanding as to how those “results” might be achieved. Sadly many believe such demands are a sign of leadership: funny as that is. This faulty thinking that is at the center of huge failings ( think GM and the recent Wall Street debacle as examples). In franchise development, particularly during slow economic times, the opportunity for brands to separate themselves from the pack is greatest but only through an effort of focusing on core business model issues and opportunities. Trying to figure out how to sell more franchises isn’t the answer, although for many that remains the solution.

The principal role of intelligent leaders in franchising or any other industry is to illuminate their organization about the need to choose between the status quo and a future of greater potential. As the article, “Pleasing Wall Street is a Poor Excuse for Bad Decisions” put it: good decisions rarely have much to do with the near term. No matter if you are a public or private enterprise, for profit or not for profit, the near term result should never be driven at the cost of the big picture. Dr. Ed Catmull, founder of Pixar, who wrote the article notes, among other things:

Managers who focus on maximizing short-term profits end up driving out things that generate long-term value — like R&D. They use all sorts of excuses when they make those decisions, including the need to please Wall Street and create shareholder value. But they’re just excuses for poor thinking.

We need business leaders who have a respect for technical issues even if they don’t have technical backgrounds. In a lot of U.S. industries, including cars and even computers, many managers don’t think of technology as a core competency, and this attitude leads them to farm out technical issues. But we live in a technical society; technology is just fundamental to our way of life. Technical understanding should be a core competency of any company.

Watch Ed’s description about how his firm, Pixar, was and is able to innovate. He is a smart man and I concur with his views. Near term results by the way are NOT at the center of their success but other more important things are. What do you think about that ?

Borrowing for business expansion, particularly in franchising, has been quite difficult for some time now. What is compounding the situation is that real estate values have not risen and this means inadequate collateral for lenders to make deals happen. A recent Wall Street Journal article, Real Estate Bust Hurts Lending for Little Guys, written by Emily Maltby, concurs with this view. Here is an excerpt:

“Even as some segments of the economy bounce back, the lagging pace of improvement in the real-estate market continues to hamper owners’ efforts at landing credit. “As the big guys are doing better, people ask, why not the smaller firms? Well, this is a huge part of the reason,” says William Dennis, Jr., a senior research fellow at the National Federation of Independent Business in Washington.

Because business owners used real estate to support financing endeavors in a variety of ways, the subprime crisis hit Main Street particularly hard as it rippled through the credit markets. Before the real-estate bubble burst, home and business properties were a reliable source of collateral for many businesses.”

Franchisors, who rely on and had relied upon easily available credit in the recent past for franchisees to expand, are going to have to reconsider their growth plans for the forseeable future as collateral values aren’t going up anytime soon. That is why it is critical for franchise systems to use this opportunity to sharpen their swords. Improving internal systems, methods and support to really help existing franchises achieve greater profit and stability is more important than ever. Franchise flywheel represents the type of tools ZOR’s should be adopting to put an emphasis on improving core capabilities until the damper on growth passes.

Brad Stone and Ashlee Vance recently wrote in the NYT that companies are “Slowly” Joining the Cloud. They’re joining alright, but probably more quickly than people might realize. This is particularly true when one realizes how fast start ups and smaller more agile firms are jumping onto the Cloud bandwagon because it just doesn’t make any sense not to. Here is a direct quote from the article:

When given a clean slate, many new companies have chosen a full embrace of the cloud model, figuring the technology industry has matured to the point were these types of services make basic business sense. For example, Arista Networks, a five-year-old company that makes networking equipment, runs its sales software with a cloud software company called NetSuite, its corporate e-mail on Google Apps, and other Web infrastructure with Amazon.com.

“It’s so much easier,” said Andreas von Bechtolsheim, the co-founder Arista and Sun Microsystems and one of earliest investors in Google and VMware. “For a new company like us, you would just never build a traditional data center anymore.”

And this is where the real story lies. You see while larger organizations might be wary of the Cloud, each day they fail to shift their IT infrastructure to the Cloud is a day the competition is gaining a leg. The same is true for all industries including franchising. Ironically, the ROI for larger corporations adopting the cloud is much higher than for smaller ones from a strictly cost benefit standpoint. From a strategic point of view the ROI is even higher.

Yes companies are adopting the Cloud and for the ones doing it slowly or not doing it at all, they best reconsider their long term viability.